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Prefatory Note
The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the best-preserved paper copies, scanning those copies,1 and then making the scanned versions text-searchable.2 Though a stringent quality assurance process was employed, some imperfections may remain.
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Strictly Confidential (FR) Class I FOMC
MONETARY POLICY ALTERNATIVES
Prepared for the Federal Open Market Committee
By the staff Board of Governors of the Federal Reserve System
Strictly Confidential (FR)Class I - FOMC September 23, 1994
MONETARY POLICY ALTERNATIVES
Recent Developments1
(1) The System tightened the stance of monetary policy on
August 16 through Board approval of an increase in the discount rate
of 1/2 percentage point, to 4 percent, and a decision by the Committee
to allow the entire increase in the discount rate to show through to
interest rates in reserve markets. The latter was implemented by
leaving the borrowing assumption unchanged at $450 million.
Short-term rates, which had incorporated an anticipation of a somewhat
less aggressive policy move, backed up on the announcement of these
actions that day. Commercial banks increased their prime rates 1/2
percentage point, to 7-3/4 percent, maintaining the 300 basis point
spread over the federal funds rate that has prevailed since late 1992.
However, expectations of the level of short-term rates likely to pre-
vail beyond the next few months were revised down in response to the
accompanying announcement suggesting that the Federal Reserve would
take no further action for a time, and perhaps also to a sense that
less tightening might ultimately be required following the unexpect-
edly aggressive action. This shift in expectations was reflected in
federal funds futures rates after October, shown in the upper left
panel of Chart 1, and in declines in note and bond yields.
(2) Short-term rates remained steady in the weeks after the
policy move. In the last few weeks, however, these rates have moved
1. Financial market quotations in this section are taken as ofnoon, Friday, September 23.
2. To accommodate shifts in seasonal credit demands, the borrowingassumption was subsequently raised to $475 and $500 million and re-duced more recently back down to $475 million. Borrowing averaged$498 million in the maintenance period ending August 31 and dropped to$447 million in the period ending September 14 on declines in bothseasonal and adjustment borrowing.
Chart 1
Federal Funds FuturesPercent
Sept.
/ .*
/ Aug. 15
/.
I I I I I IAug Sept Oct Nov Dec Jan Feb
Dailyr-
Percent-* 8
FOMC 30-Year BondAugust 16 *
" 10-Year Note
3-Month Bill
1112 8/23 9/1 9/12 9/2:
Treasury Yield Curves
September 23.................... *................. . *.............
°°..°-e ------
Percent
up appreciably. Markets built back in a steeper trajectory of near-
term Federal Reserve tightening as incoming economic data were seen as
pointing to a greater risk of inflation. The initial declines in
long-term rates were rolled back within a few days of the System
action, and these rates have risen noticeably further in response to
the recent data. On balance over the intermeeting period, long-term
rates have moved up about 20 to 40 basis points. Equity markets also
declined in recent days, but advanced on net over the period.
(3) With inflation concerns heightened, rising interest
rates in the latter part of the period did not buoy the dollar, which
declined about 1-3/4 percent, on balance. Contributing to the dol-
lar's weakness were signs of unexpected strength in the German economy
and associated increases in German interest rates: Short-term rates
moved only slightly higher, but long-term rates rose 35 basis points.
In Japan, incoming data pointed to a subdued recovery, and short- and
long-term rates showed little change. In Canada, market concerns over
a possible Quebec secession faded in the wake of the weaker-than-
expected showing of support for the Parti Quebecois in provincial
elections. Consequently, the Canadian currency rose 2-1/2 percent
against the U.S. dollar, while Canadian short- and long-term interest
rates declined 50 and 10 basis points, respectively.
(4) The monetary aggregates declined in August and data for
early September suggest a leveling off this month, leaving M2 and M3 a
little above the lower bounds of their long-term ranges. On balance,
the aggregates have been weaker than anticipated at the time of the
last meeting, even after allowing for the effects of the recent tight-
ening of monetary policy. Weakness in August was concentrated in the
liquid components. Demand deposits, continuing to be depressed by
declines in mortgage refinancing, contracted in August, following two
months of surprising strength. Other checkable deposits and savings
deposits also ran off, reflecting the substantial gap between rates on
these and competing instruments that has opened up since the System
began to tighten in February. Some of the balances in the latter
accounts apparently have been shifted into small time deposits, which
accelerated in August. Rates on time deposits, although reacting more
slowly than usual to increases in market rates, have risen somewhat in
recent weeks, whereas returns on liquid deposits have barely budged
this year. In light of the sluggish behavior of deposit rates, the
overall weakness in M2 is roughly in line with historical rela-
tionships embodied in money demand models, given the staff forecast of
spending in the current quarter. The relative attractiveness of mar-
ket investments can be seen in the volume of noncompetitive tenders in
Treasury auctions, which was exceptionally heavy in August. Flows
into stock mutual funds continued to be strong, but outflows from bond
funds persisted; the total of the two was well below the pace of 1992
and 1993, suggesting, at most, modest net shifts between M2 and
capital market mutual funds.4 Institution-only money funds dropped
sharply in response to the rise in market yields, and as a consequence
M3 also was weak last month. The broader aggregate was buoyed by
3. M1 declined at a 2 percent rate in August, as currency growthslowed a bit, while transaction deposits ran off. Reserves dropped ata 6 percent rate, holding down the growth of the base to 6-1/4 per-cent. Over all of 1994, reserves have dropped at a 1-1/2 percentrate, while the base has increased at a rate of 8-3/4 percent.
4. M2+ was flat in August; from the fourth quarter of last yearthrough August, this expanded aggregate grew at a 1-1/4 percent rate,nearly the same pace as for M2.
brisk issuance of large time deposits, as banks continued to rely on
managed liabilities to fund credit growth. As in recent months,
however, banks continued to make heavy use of sources outside the
monetary aggregates, particularly borrowings from foreign offices.
(5) Bank credit slowed in August, although loan growth re-
mained strong. Business loans expanded at an annual rate of almost 10
percent. Anecdotal evidence of further easing in the standards and
terms for business loans continued to accumulate. In recent months,
bank lending to businesses has been boosted by rising external financ-
ing needs and growing merger and acquisition activity, as well as by
shifts away from capital market financing. Consumer loan growth at
banks remained in double digits in August, suggesting that consumer
credit continued to expand briskly. Nonetheless, growth of overall
debt of nonfinancial sectors slowed in recent months, held down by
retirements of state and local obligations from the proceeds of ear-
lier advance refundings. Moreover, federal borrowing has moderated a
bit from earlier in the year on a seasonally adjusted basis. On net,
nonfinancial debt is estimated to have expanded in recent months at
less than a 5 percent annual rate, down from earlier this year,
keeping it well in the lower half of its 4 to 8 percent monitoring
range.
MONEY, CREDIT, AND RESERVE AGGREGATES(Seasonally adjusted annual rates of growth)
QIVto
June July Aug. Aug.1
Money and credit aggregates
M1 3.7 7.5 -1.9 3.6
M2 -2.2 4.5 -2.1 1.4
M3 0.0 6.1 -1.9 0.7
Domestic nonfinancialdebt 3.4 2.5 -- 4.9
Federal 4.9 1.2 -- 5.6Nonfederal 2.9 3.0 -- 4.6
Bank credit 3.2 12.8 5.0 7.1
Reserve measures
Nonborrowed reserves2 -6.7 -0.3 -6.3 -2.8
Total reserves -4.0 2.2 -6.0 -1.5
Monetary base 7.7 8.1 6.3 8.8
Memo: (Millions of dollars)
Adjustment plus seasonalborrowing 333 458 469
Excess reserves 1105 1107 1005
QIV to July for debt aggregates.Includes "other extended credit" from the Federal Reserve.
NOTE: Monthly reserve measures, including excess reserves and borrow-ing, are calculated by prorating averages for two-week reservemaintenance periods that overlap months. Reserve data incor-porate adjustments for discontinuities associated with changes inreserve requirements.
Monetary Policy Alternatives
(6) Three monetary policy alternatives are presented below
for consideration by the Committee. Under alternative B, the federal
funds rate would continue to trade around 4-3/4 percent, consistent
with retaining an allowance of $475 million for adjustment plus sea-
sonal borrowing.5 Alternative C envisages raising the federal
funds rate 1/4 percentage point, to 5 percent, in conjunction with an
increase in the borrowing allowance to $500 million. Under alterna-
tive D, the federal funds rate would be moved up to 5-1/4 percent,
achieved either by an increase in the initial borrowing allowance to
$525 million or by an unchanged borrowing allowance and a hike in the
discount rate to 4-1/2 percent.
(7) In the Greenbook forecast, the policy restraint now in
place is not viewed as adequate to slow spending sufficiently to fore-
stall a buildup of inflation pressures, given the apparent underlying
strength of aggregate demand and the likely absence of any margin of
economic slack. The policy firming built into the staff forecast
would push the federal funds rate up around one percentage point be-
fore next spring. A tightening of about this magnitude over the next
few quarters seems to be built into the structure of market interest
rates; in contrast to the staff assumption, that structure also can be
read as implying further increases subsequently. The firming assumed
by the staff keeps short- and longer-term real interest rates high
enough to rein in output to the neighborhood of potential; core infla-
tion picks up a bit late this year, but edges down over 1995 to a rate
slightly above its recent pace.
5. Over the intermeeting period, seasonal borrowing should trenddown, as is the norm for this time of year, necessitating technicalreductions in the borrowing assumption.
(8) Alternative B, which would retain current reserve condi-
tions, is not inconsistent with the staff assumption of policy firm-
ing, provided that firming resumes some time soon. Inaction might be
deemed particularly appropriate if the Committee believed that strains
on capacity could be less pressing than in the staff forecast, either
because potential output might be greater than assumed by the staff or
because more restraint on spending could be in the pipeline in view of
the substantial increases in interest rates over the past year. More-
over, slow growth of a broad array of monetary and credit aggregates
might be seen as suggesting that financial conditions are not con-
ducive to a pickup in underlying inflation. A pause would allow the
Committee to accumulate more evidence on these questions. Such a
wait-and-see posture would accord with the tone of the press statement
announcing the policy action taken at the August meeting.
(9) Market opinions on what the Committee might do at this
meeting are split. Some analysts have interpreted the recent economic
news as implying sufficiently greater inflation potential to overcome
any presumption of a policy pause; they expect a firming action, per-
haps of 50 basis points. Others still anticipate a hiatus in the
process of policy tightening; however, even many of those in the
latter camp seem to expect some action no later than the November
meeting. While few actually foresee a 25 basis point increase, the
composite effect of these different views has produced a federal funds
futures rate for October that is 25 basis points above the current
funds rate. Nonetheless, maintenance of existing reserve conditions
under alternative B might elicit little reaction in rates beyond the
very shortest maturities because market participants would assume that
tightening had simply been postponed. In these circumstances, longer-
term instruments might trade in their current ranges at least for a
time, although security prices probably will remain quite sensitive to
news bearing on inflation pressures as market participants attempt to
gauge the extent of future policy restraint. In that regard, under
the staff forecast, economic releases over the next few months would
suggest that inflation is on a slightly higher track and that final
demand remains fairly vigorous. Absent unanticipated changes in
policy abroad, the foreign exchange value of the dollar most likely
would remain around its current level, though it could come under some
downward pressure if inflation expectations began to deteriorate
further.
(10) A tightening in reserve conditions at this meeting
might be favored if the Committee saw a significant risk that output
is in the process of surpassing its long-run potential. Waiting in
these circumstances might risk the development of a degree of infla-
tion momentum--partly through expectations channels--that could make
it more difficult to contain inflation at recent rates, much less
achieve the long-run goal of price stability. The 50 basis point
firming of alternative D is the most likely of the three policy
options to keep the Federal Reserve "ahead of the curve" of inflation
pressures and consequently to limit the extent to which policy might
later need to tighten. If the Committee were uncertain about how much
tightening would be required but wanted to respond to recent data, the
more modest 25 basis point move of alternative C might be considered
appropriate.
(11) The 25 basis point tightening of alternative C is con-
sistent with the current structure of market rates, and this policy
action might well trigger only muted interest rate reactions. How-
ever, since most market participants expect either no action or a 50
basis point tightening, alternative C could raise questions about
System intentions, potentially unsettling markets. A considerable
portion of the 50 basis point increase in the federal funds rate under
alternative D would pass through to other short-term rates. In light
of recent experience and the split in market expectations, it's dif-
ficult to say what immediate impact this alternative would have on
interest rates in capital markets. Eventually, assuming economic and
price data consistent with the staff forecast, intermediate-term
yields could tend to work their way a bit higher, as market partici-
pants raised their expected path for Federal Reserve tightening in
this phase of the business cycle. But the System's evident willing-
ness to deal with inflation pressures through a 50 basis point move
should alleviate longer-run concerns in this regard, limiting any
increases in bond yields. With the rise in real interest rates, the
dollar would likely appreciate somewhat on exchange markets.
(12) Under all three alternatives outlined above, the debt
of the domestic nonfinancial sectors should expand at about a 5 per-
cent rate over the balance of the year, placing the annual growth of
this aggregate also at 5 percent, in the lower half of its 4 to 8
percent monitoring range. With capital spending by nonfinancial
corporations anticipated to outpace their internally generated funds
by a widening margin and merger activity continuing at its more ele-
vated pace, business borrowing could strengthen some over the balance
of the year. Commercial banks are anticipated to remain aggressive
lenders to this sector, including for merger-related activity. In the
household sector, consumer credit growth is expected to remain near a
-10-
double-digit rate even as borrowing costs continue to edge up, sup-
porting solid expansion of consumer durables spending. Despite some-
what faster expansion of federal debt late in 1994, growth for the
year--projected at 5-1/2 percent--would be the slowest in fifteen
years.
(13) Growth of the monetary aggregates over the September-
to-December period is presented below for alternatives B and D. Any
action taken this late in the year is unlikely to have much of an
impact on the annual growth rates of the aggregates for 1994, shown in
the lower panel of the table. For illustrative purposes, the path
under alternative B was derived assuming that the funds rate would
hold at its current level for the remainder of the year. The path for
the aggregates under alternative D assumes that the funds rate moves
up to 5-1/4 percent at this meeting and stays there for the balance of
the year. Thus, neither alternative matches the assumption in the
Greenbook forecast. (The response of the aggregates under alternative
C would lie midway between the two alternatives.)
Alt. B Alt. DGrowth from September
to December
M2 1-1/2 1/2M3 1-1/4 3/4M1 2-1/2 1-1/2
Implied growth from93:Q4 to 94:Q4
M2 1-1/4 1M3 3/4 3/4M1 3-1/4 3
(14) Over the September-to-December period, M2 would expand
at a 1-1/2 percent rate under alternative B. The staff has assumed
that deposit rates will continue to adjust sluggishly to market rates.
Alternative Levels and Growth Rates for Key Monetary Aggregates
M2 M3 M1
Alt. B Alt. D Alt. B Alt. D Alt. B Alt. D
Levels in BillionsMay-94 3596.1 3596.1 4226.4 4226.4 1142.9 1142.9Jun-94 3589.4 3589.4 4226.4 4226.4 1146.4 1146.4
Jul-94 3603.0 3603.0 4247.8 4247.8 1153.6 1153.6
Aug-94 3596.8 3596.8 4240.9 4240.9 1151.8 1151.8
Sep-94 3596.6 3596.6 4243.0 4243.0 1152.7 1152.7Oct-94 3599.6 3597.7 4246.6 4245.5 1154.5 1154.0Nov-94 3603.9 3598.8 4251.5 4248.8 1156.9 1155.2Dec-94 3609.5 3601.8 4256.2 4251.5 1159.6 1156.8
Monthly Growth RatesJun-94 -2.2 -2.2 0.0 0.0 3.7 3.7Jul-94 4.5 4.5 6.1 6.1 7.5 7.5
Aug-94 -2.1 -2.1 -1.9 -1.9 -1.9 -1.9Sep-94 -0.1 -0.1 0.6 0.6 0.9 0.9Oct-94 1.0 0.4 1.0 0.7 1.9 1.3Nov-94 1.4 0.3 1.4 1.0 2.5 1.3Dec-94 1.9 1.0 1.3 0.8 2.8 1.6
Quarterly Averages94 Q1 1.9 1.9 0.3 0.3 6.0 6.094 Q2 1.9 1.9 0.5 0.5 1.9 1.994 Q3 0.7 0.7 1.6 1.6 3.2 3.294 Q4 0.6 0.1 0.7 0.4 1.5 0.9
Growth RateFrom ToDec-93 Sep-94 1.1 1.1 0.3 0.3 2.9 2.9Sep-94 Dec-94 1.4 0.6 1.2 0.8 2.4 1.4
93 Q4 Sep-94 1.3 1.3 0.7 0.7 3.3 3.3
91 Q4 92 Q4 1.9 1.9 0.5 0.5 14.3 14.3
92 Q4 93 Q4 1.4 1.4 0.7 0.7 10.5 10.593 Q4 94 Q4 1.3 1.1 0.8 0.7 3.2 3.0
1.0 to 5.0 0.0 to 4.01994 Target Ranges:
Chart 2
ACTUAL AND TARGETED M2Billions of Dollars
- Actual Level
* Short-Run Alternatives
SBa D
1 1 1 1 1 1 1 1 1 1 1 1 1
I IO ND J F MA M J J A S O N D J
3800
-H 3750
-- 3700
-- 3650
-- 3600
- 3550
3500
3450I I
-
1993 1994
Chart 3
ACTUAL AND TARGETED M3Billions of Dollars
- Actual Level* Short-Run Alternatives
4450
-- 4400
-1 4350
-- 4300
S- 4250* D H 4250
-- 4200
-1 4150
-H 4100
I I I I I I I I I I I IO N D J F M A M J J A SO N D J
4050
''''''
''''''
1993 1994
Chart 4
M1Billions of Dollars
1 1320
- Actual Level
* Short-Run Alternatives
S15%
S10%
. 5%
- .* . ..- *
S% D
0%
1I 11111 11111111O N D J F M A M J J A S O N D J
1300
1280
1260
1240
1220
1200
1180
- 1160
- 1140
- 1120
1100
1993 1994
Chart 5
DEBTBillions of Dollars
1 13400
- Actual Level
* Projected Level
O N D J F M A M J J A S O N D J
13200
13000
12800
12600
12400
12200
12000
1993 1994
-12-
In addition, declines in mortgage prepayments will continue to depress
demand deposits. These factors will place a particular drag on liquid
accounts, and M1 will expand at only a 2-1/2 percent rate over the
period.6 While the growth of small time deposits should remain
robust, not all the funds lost from liquid deposits will remain in M2.
Direct purchases of securities, including noncompetitive tenders at
Treasury auctions, are anticipated to continue at a healthy clip. As
a result, M2 velocity is expected to continue increasing rapidly in
the fourth quarter--at a rate near 5 percent. M3 growth should pick
up a bit over the remainder of 1994, reflecting somewhat reduced
reliance of banks on nondeposit sources of funding.
(15) Under alternative D, M2 would grow at a 1/2 percent
rate over the September-to-December period. The sluggish adjustment
of deposit rates to the rise in market rates would further widen
opportunity costs, depressing M1 and savings deposits even more.
However, should policy firming be accompanied by some price declines
in capital markets, outflows from bond mutual funds could intensify,
some of the outflows might find their way into deposits and money
market mutual funds, partly offsetting the effects on M2 of the higher
cost of holding deposits. M3 would grow at a 3/4 percent rate over
the remaining months of the year, pulled down by a runoff of institu-
tion-only money funds as their yields lag behind the increase in money
market rates that would be in train under alternative D.
6. Rapid currency growth should continue to bolster M1 over thebalance of the year. As a result, under alternative B, the monetarybase should expand at about a 8-1/4 percent rate, while total reservesshould grow at a 1-3/4 percent rate over the September-to-Decemberperiod.
-13-
Directive Language
(17) Presented below is draft wording for the operational
paragraph that includes the usual options for Committee considera-
tion.
OPERATIONAL PARAGRAPH
In the implementation of policy for the immediate
future, the Committee seeks to DECREASE SOMEWHAT
(SLIGHTLY)/MAINTAIN/increase somewhat (SLIGHTLY) the
existing degree of pressure on reserve positions-,
[DEL: taking account of a possible increase in the discount
rate.] In the context of the Committee's long-run
objectives for price stability and sustainable
economic growth, and giving careful consideration to
economic, financial, and monetary developments,
slightly (SOMEWHAT) greater reserve restraint
(WOULD/MIGHT) or slightly (SOMEWHAT) lesser reserve
restraint would (MIGHT) be acceptable in the
intermeeting period. The contemplated reserve
conditions are expected to be consistent with modest
growth in M2 and M3 over THE BALANCE OF THE YEAR
[DEL:coming months.]
September 23, 1994Table 1
SELECTED INTEREST RATES(percent)
Short-Term Long-TermCDs money corporate conventional home mortgages
federal Treasury bills secondary comm. market bank U.S. government constant A-utility municipal secondary primaryfunds secondary market market paper mutual prime maturity yields recently Bond market market
S3-month 6-month I 1-year 3 -month 1 -month fund loan 3-year 10-year 30-year offered Buyer fixed-rate fixed-rate ARM1 2 _ 3 4 5 6 7 8 9 10 1 11 12 13 14 15 1 16
93 -- High-- Low
94 -- High-- Low
MonthlySep 93Oct 93Nov 93Dec 93
Jan 94Feb 94Mar 94Apr 94May 94Jun 94Jul 94Aug 94
WeeklyJun 8 94Jun 15 94Jun 22 94Jun 29 94
Jul 6 94Jul 13 94Jul 20 94Jul 27 94
Aug 3 94Aug 10 94Aug 17 94Aug 24 94Aug 31 94
Sep 7 94Sep 14 94Sep 21 94
DailySep 16 94Sep 21 94Sep 22 94
3.24 3.12 3.27 3.48 3.36 3.44 2.92 6.002.87 2.82 2.94 3.07 3.06 3.07 2.59 6.00
4.74 4.64 5.06 5.47 5.00 4.89 4.17 7.752.97 2.94 3.12 3.35 3.11 3.11 2.68 6.00
3.09 2.95 3.06 3.22 3.12 3.14 2.65 6.002.99 3.02 3.12 3.25 3.24 3.14 2.65 6.003.02 3.10 3.26 3.42 3.35 3.15 2.66 6.002.96 3.06 3.23 3.45 3.26 3.35 2.70 6.00
3.05 2.98 3.15 3.39 3.15 3.14 2.71 6.003.25 3.25 3.43 3.69 3.43 3.39 2.73 6.003.34 3.50 3.78 4.11 3.77 3.63 2.86 6.063.56 3.68 4.09 4.57 4.01 3.81 3.03 6.454.01 4.14 4.60 5.03 4.51 4.28 3.29 6.994.25 4.14 4.55 4.98 4.52 4.36 3.61 7.254.26 4.33 4.75 5.17 4.73 4.49 3.75 7.254.47 4.48 4.88 5.25 4.81 4.65 3.95 7.51
4.13 4.11 4.52 4.92 4.47 4.35 3.57 7.254.21 4.12 4.51 4.90 4.44 4.32 3.59 7.254.19 4.15 4.53 4.94 4.49 4.35 3.63 7.254.19 4.16 4.58 5.11 4.62 4.41 3.64 7.25
4.38 4.21 4.67 5.19 4.78 4.52 3.70 7.254.30 4.38 4.83 5.23 4.79 4.55 3.75 7.254.30 4.27 4.67 5.06 4.66 4.47 3.78 7.254.28 4.39 4.79 5.23 4.69 4.46 3.80 7.25
4.28 4.33 4.74 5.12 4.68 4.45 3.83 7.254.26 4.42 4.87 5.24 4.75 4.50 3.85 7.254.35 4.47 4.93 5.29 4.82 4.66 3.88 7.394.66 4.56 4.93 5.32 4.88 4.80 4.03 7.754.72 4.57 4.88 5.27 4.87 4.79 4.08 7.75
4.74 4.55 4.84 5.26 4.87 4.81 4.12 7.754.70 4.58 4.95 5.34 4.94 4.85 4.14 7.754.73 4.64 5.06 5.47 5.00 4.89 4.17 7.75
4.68 4.61 5.03 5.48 4.98 4.88 -- 7.754.87 4.79 5.19 5.57 5.04 4.91 -- 7.754.78 4.79 5.19 5.55 5.18 4.98 -- 7.75
5.064.07
6.714.44
4.174.184.504.54
4.484.835.405.996.346.276.486.50
6.166.196.286.38
6.506.576.376.49
6.366.526.556.546.48
6.486.626.71
6.726.816.80
6.73 7.46 8.285.24 5.83 6.79
7.49 7.75 8.695.70 6.25 7.16
5.36 6.00 6.945.33 5.94 6.915.72 6.21 7.255.77 6.25 7.28
5.75 6.29 7.245.97 6.49 7.456.48 6.91 7.826.97 7.27 8.207.18 7.41 8.377.10 7.40 8.307.30 7.58 8.457.24 7.49 8.36
6.97 7.27 8.217.04 7.34 8.327.14 7.44 8.417.20 7.48 8.49
7.33 7.62 8.577.41 7.68 8.427.22 7.52 8.457.29 7.56 8.27
7.15 7.43 8.377.26 7.52 8.357.25 7.47 8.397.27 7.51 8.367.23 7.49 8.38
7.24 7.52 8.597.41 7.68 8.697.49 7.75
6.44 8.17 8.14 .5.365.41 6.72 6.74 4.14
6.66 9.02 8.77 5.585.49 7.02 6.97 4.12
5.50 6.89 6.92 4.365.48 6.85 6.83 4.255.71 7.32 7.16 4.245.59 7.27 7.17 4.23
5.54 7.12 7.06 4.215.65 7.35 7.15 4.206.16 7.96 7.68 4.556.48 8.55 8.32 4.966.46 8.78 8.60 5.466.38 8.62 8.40 5.456.48 8.82 8.61 5.526.44 8.82 8.51 5.53
6.20 8.49 8.25 5.456.34 8.61 8.33 5.436.43 8.68 8.46 5.416.56 8.89 8.57 5.48
6.52 8.91 8.68 5.566.47 8.79 8.72 5.586.46 8.82 8.52 5.466.47 8.71 8.57 5.54
6.37 8.82 8.38 5.506.49 8.84 8.57 5.566.45 8.87 8.54 5.526.46 8.74 8.56 5.546.43 8.69 8.48 5.49
6.46 8.90 8.51 5.476.51 8.93 8.66 5.496.66 9.02 8.73 5.56
7.52 7.787.56 7.807.56 7.79
NOTE: Weekly data for columns 1 through 11 are statement week averages. Data in column 7 are taken from Donoghue's Money Fund Report. Columns 12,13 and 14 are 1-day quotes for Friday, Thursday or Friday, respectively,following the end of the statement week. Column 13 is the Bond Buyer revenue index. Column 14 is the FNMA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the averagecontract rate on new commitments for fixed-rate mortgages (FRMs) with 80 percent loan-to-value ratios at major institutional lenders. Column 16 is the average initial contract rate on new commitments for 1-year, adjustable-rate mortgages (ARMs) at major institutional lenders offering both FRMs and ARMs with the same number of discount points.
Table 1 Strictly Confidential (FR)-
Money and Credit Aggregate Measures C FOMC
Seasonally adjusted SEPTEMBER 2. 1994Seasonally adjusted
Money stock measures and liquid assets Bank credit Domestic nonfinancial debt'
nontransactions components total loanslotal loans
Period M1 M2 M3 L and U. S. other' total2In M2 In M3 only investments' government
2
1 2 3 4 5 8 7 8 10Annual growth rates(s):
Annually (Q4 to Q4)1991 7.9 2.9 1.2 -6.0 1.2 0.4 3.5 11.3 2.5 4.51992 14.3 1.9 -2.4 -6.3 0.5 1.4 3.7 10.7 2.7 4.71993 10.5 1.4 -2.3 -3.3 0.7 1.1 4.9 8.4 4.0 5.2
Quarterly Average1993-3rd QTR. 12.0 2.5 -1.6 -6.6 1.1 1.0 6.8 8.2 4.7 5.61993-4th QTR. 9.4 2.3 -0.8 4.0 2.6 2.0 3.1 6.1 4.5 4.91994-let QTR. 6.0 1.9 -0.0 -8.4 0.3 2.4 6.9 7.3 4.6 5.31994-2nd QTR. 1.9 1.9 2.0 -7.2 0.5 1.0 7.2 5.5 5.3 5.4
Monthly1993-AUG. 9.4 0.8 -3.0 -4.2 0.0 2.1 1.7 7.9 4.7 5.6
SEP. 10.7 2.8 -0.8 1.8 2.6 -1.6 3.1 7.0 4.7 5.3OCT. 9.0 1.3 -2.2 7.3 2.2 2.5 0.9 0.7 4.6 3.6NOV. 9.7 4.2 1.6 2.4 3.9 3.2 6.3 9.2 3.9 5.3DEC. 6.4 2.6 0.8 10.0 3.7 4.8 5.2 11.9 4.6 6.6
1994-JAN. 5.4 1.8 0.0 -1.8 1.2 4.7 7.7 3.8 4.4 4.2FEB. 5.4 -1.3 -4.3 -41.3 -7.5 -2.7 5.6 6.0 4.4 4.8MAR. 4.0 4.7 5.0 -10.3 2.4 0.1 10.9 8.9 5.8 6.7APR. -1.4 2.9 4.9 1.9 2.7 4.6 10.2 3.9 6.1 5.5MAY 1.9 1.3 1.1 -10.6 -0.4 0.0 1.6 4.2 5.2 4.9JUNE 3.7 -2.2 -5.0 13.1 0.0 -1.9 3.2 4.9 2.9 3.4JULY 7.5 4.5 3.1 14.5 6.1 7.2 12.8 1.2 3.0 2.5AUG. p -1.9 -2.1 -2.2 -1.3 -1.9 5.0
Levels ($Billions):Monthly
1994-APR. 1141.1 3592.1 2451.0 635.8 4227.9 5163.0 3194.6 3390.6 9149.7 12540.2MAY 1142.9 3596.1 2453.3 630.2 4226.4 5163.2 3198.9 3402.5 9189.1 12591.5JUNE 1146.4 3589.4 2443.0 637.1 4226.4 5155.0 3207.5 3416.3 9211.4 12627.7JULY 1153.6 3603.0 2449.4 644.8 4247.8 5186.0 3241.6 3419.8 9234.5 12654.3AUG. p 1151.8 3596.8 2445.0 644.1 4240.9 3255.0
Weekly1994-AUG. 1 1158.6 3608.2 2449.6 645.2 4253.4
8 1147.7 3590.7 2443.0 644.6 4235.315 1148.3 3596.9 2448.6 641.3 4238.222 1154.2 3600.5 2446.4 645.1 4245.629 1154.4 3597.5 2443.2 645.1 4242.6
SEP.. 5 p 1155.4 3594.0 2438.6 644.6 4238.612 p 1152.0 3595.4 2443.4 648.6 4243.9
1. Adjusted for breaks caused by redassifications.2. Debt data are on a monthly average basis, derived by averaging end-of-month levels of adjacent months, and have been adjusted to remove discontnuities.
p preliminarype preliminary estimate
Appendix Table 2
Components of Money Stock and Related MeasuresSeasonally adjusted unless otherwise noted
Strictly Confidential (FR)-Class II FOMC
SEPTEMBER 26,1994
Money marketOvernight Small mutual funds Large
Other RPs and denomi- general denomi- Term Term Short-termPeriod urrency Demand checkable Euro- Savings nation purpose Institutions ation P's Euro- Savings Tre r Commeral B rs
deposits deposits dollars deposits2
time and di lae NSAbd putis cesan
NSA' deposits3
broker only deposits NSA'sde1aler
1 2 3 4 5 6 7 8 9 1e 11 12 13 14Levels (Billions):
Annually (4th Qtr.)199119921993
Monthly1993-AUG.
SEP.
OCT.NOV.DEC.
1994-JAN.FEB.MAR.
APR.MAYJUNE
JULYAUG. p
265.6289.7319.5
312.4315.4
317.6319.5321.4
325.2329.2332.4
334.8337.6340.3
343.2345.4
286.3337.1382.1
370.9375.4
378.4383.2384.8
388.3390.3390.0
388.9385.8386.6
389.4387.9
328.8380.1411.9
404.2406.6
409.5411.8414.3
412.0411.2411.9
409.3411.2411.4
412.7410.2
77.5 1027.8 1082.881.2 1177.9 883.090.8 1212.1 790.4
82.285.6
89.690.692.3
95.193.598.5
96.899.9
104.4
108.5109.3
1205.91208.4
1208.81211.91215.5
1220.31220.91221.9
1220.71215.91207.2
1202.41194.8
806.6799.9
794.9790.6785.6
779.5774.5771.1
768.6769.1770.4
772.5777.6
369.7354.0346.7
345.5345.0
344.4347.0348.8
347.8343.7348.4
361.5365.1359.3
363.5362.9
174.4206.5195.4
190.1190.8
194.3194.8197.0
192.7176.9177.4
177.0169.3169.5
170.9169.3
433.1365.3340.0
341.6340.4
341.6339.4339.0
341.5335.7330.9
330.5333.5333.9
336.6340.0
74.780.996.1
97.697.3
96.095.696.8
92.991.594.1
97.997.0
101.4
103.2100.6
137.0154.4170.9
168.2169.2
170.1170.8171.7
172.7173.4174.1
174.8175.7176.6
177.5
321.1327.7325.9
343.8328.0
323.7324.6329.3
339.1341.6345.8
361.2358.7348.9
357.2
334.0366.3385.2
379.5378.4
384.7384.1386.8
391.6403.0389.6
384.9391.0392.6
392.7
24.520.515.4
16.516.4
16.415.314.6
14.915.315.7
14.111.410.5
10.7
1. Net of money market mutual fund holdings of these items.2. Includes money market deposit accounts.3. Includes retail repurchase agreements. All IRA and Keogh accounts at commercial banks and thrift institutions are subtracted from small time deposits.4. Excludes IRA and Keogh accounts.5. Net of large denomination time deposits held by money market mutual funds, depository Institutions, U.S. government and foreign banks and official institutions.
p preliminary
September 23, 1994
NET CHANGES IN SYSTEM HOLDINGS OF SECURITES1
Millions of dollars, not seasonally adjusted
STRICTLY CONFIDENTIAL (FR)CLASS II-FOMC
Treasury bills Treasurycoupons Federal Net changeSpurs 3 agendes outright
Period Net Redeptions Net Ne purchases Redemptions Net redemptions holdings 5purchases (-) change w n 1-5 5-10 over 10 (.) Change total 4 Net RPs
1994 ---Q1--- 02
1993 SeptemberOctoberNovemberDecember
1994 JanuaryFebruaryMarchAprilMayJuneJulyAugust
WeeklyJune 8
152229
July 6132027
August 31017
2431
September 71421
Memo: LEVEL (bil. $) 6September 21
19,03811,48617,249
--- 7,749--- 1,268
168 8,232
--- 2,164--- 6,639
20,03813,08617,717
7,7491,2688,700
2,1646,639
3661,3965,9111,394
1,264900
1,1011,3954,143
1,610
3,750
246147
184517409501
3,043 6,5831,096 13,1181,223 10,350
279 1,441244 2,490511 3,700189 2,719
147 1,413364 2,817
411
189
147209
155
151207.0...
-..
_.~
.. ~
-.
.. ~
151
.. ~
-07.0
2,400
1002,619
1,4132,817
2,530
1,2802,8184,168
7161,1471,2971,008
1,1031,117
797
1,008
1,1031,117
938.--.
3752,3333,457
7051,110
817826
618896
87.1 26.1 34.3
--- 11,282--- 19,365
19,198
--- 3,141--- 4,990
6,326--- 4,742
616 2,665440 4,754
4,326
1004,642
-616
3,2814,599
155
4,459
354.5
292632
1,072
28991
526166
411307
35701581
2021021081807058
32263
26
32
30220
5
58
20
27,72630,21935,374
2,85112,648
7,06712,807
4,41811,086
4,656857
5,9965,954
-8171,1634,0735,5201,4804,085-322
1,547
3,750-26
214147
-302-20
184512409443
4,459-20
365.4
-1,614-13,215
5,974
-46110,624-8,6444,455
-11,66317,719
1,262-6,7237,2323,947
-7,757-3,946
40
8,2085.4414,070
-5,0233,335
-5,3962,127
43594
2,0421,009-864
-3,0572,321
144-5,4214,0564,298
-4,550-1,916-1,400
6.5
1.5 1.7 0.6 0.0 3.8
366
927
5,911
1,394
1,264
9001,101
1,395
4,143
1,610
3,750
246147
184
517
409501
.-.
1. Change from end-of-period to end-of-period. 4. Reflects net change in redemptions (-) of Treasury and agency securities.2. Outright transactions in market and with foreign accounts. 5. Includes change in RPs (+), matched sale-purchase transactions (-), and matched purchase sale transactions (+).3. Outright transactions in market and with foreign accounts, and short-term notes acquired 6. The levels of agency issues were as follows:in exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues. within 10
1 year 1-5 5-10 over 10 total
September 21
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